Estate Planning Newsletter

• The Uniform Anatomical Gift Act
  Statistics from the U.S. Department of Health and Human Services indicate that while an average of 75 people receive an organ transplant each day, 18 people die each day while awaiting an organ transplant. The Uniform Anatomical Gift... Read more.
• Reverse Mortgages as a Way to Enhance Retirement Living
  Many are familiar with the concept of a mortgage, where an individual makes monthly payments to a lender. However, for those who qualify, there is another type of mortgage called a “reverse mortgage” (RM), where the lender... Read more.
• Replacing an Estate Executor or Administrator
  State laws and procedures typically govern the administration of an estate. For this reason, the law varies among jurisdictions. However, in 1969, a “Uniform Probate Code” (Uniform Code) was introduced. Since that time,... Read more.
• Use of Special Needs Trusts to Protect Public Benefits for the Disabled
  Some government statistics estimate that between 15% and 20% of all Americans have some form of disability. It is also estimated that the majority of disabled persons will need to avail themselves of public assistance to help pay the... Read more.

• The importance of estate planning
• Priscilla Presley and Riley Keough to Settle Dispute Over Family Trust
• 8 estate planning tips for advisors with artists and entertainer clients
• Fiduciary Duty Breached by Nephew Who Withdrew Funds That Belonged to Family Trust
• Fiduciary Duty Breached by Nephew Who Withdrew Funds That Belonged to Family Trust

Making Charitable Bequests with Non-U.S. Assets

Taxpayers who make contributions to qualified charitable organizations are entitled to a tax benefit in the form of a charitable deduction on their income taxes. However, the issue becomes more complex when a non-U.S. citizen makes a bequest to a qualified charitable organization with non-U.S. assets, and then claims a charitable deduction.

Proportional Deduction for Charitable Bequests Paid With Non-U.S. Assets

The Tax Court has held that, in order to deduct charitable bequests in full upon filing a United States Estate Tax Return, the bequests must have been funded from property subject to the U.S. estate tax. If the bequests are funded with property located outside of the U.S., then the taxpayer will only be entitled to a proportional deduction. The deduction is calculated by dividing the value of U.S. assets by the value of worldwide assets, multiplied by the amount of charitable bequests.

In one case, a Canadian citizen had assets worth $516,268 in the U.S. and more than $100 million in Canada. His will provided for charitable bequests to Canadian-registered charities, and when he died the bequests were paid out of his Canadian funds. His estate filed a United States Estate Tax Return and claimed a charitable contribution deduction of approximately $312,840. However, the IRS only allowed a limited charitable deduction of $1,615 based on the following formula: ($516,268/$100 million) x $312,840 = $1,615.

U.S.-Canada Treaty on Income and Capital

Where the charitable bequest at issue is made by a Canadian resident who owns property in the U.S., it is important to consider the U.S.-Canada Treaty with respect to taxes on income and capital as amended by the (third) protocol in 1995. Some relevant provisions of the Treaty include:

• Relief from double taxation for Canadians who had either retired to the U.S. or owned $60,000 or more of property in the U.S.
• Credit for Canadians against U.S. estate tax for up to $600,000 of U.S. assets
• Application of U.S. estate taxes only to U.S. real estate assets where value of a Canadian’s worldwide gross estate is no more than $1.2 million

Still, the Treaty also requires that charitable bequests be funded from property subject to the U.S. estate tax in order for the taxpayer to file for a full deduction.

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